Financial Statecraft: No Longer Limited to the Incumbent Powers (SWP 62)

Traditional analyses of financial statecraft typically assume the term refers to major powers exercising influence over weaker states by such means as foreign aid blandishments or banking system sanctions. Newer scholarship highlights the subtler political influence advanced capitalist democracies also wield through their centrality to global monetary and financial markets and governance networks. Not surprisingly, rising powers are keen to expand the venues through which they too can support their larger foreign policy visions through tapping into state levers of control over cross-border currency, credit, and investment flows, as well as tilting international regulatory reforms toward their preferences. The article concludes with a comparison of United States’ and China’s financial statecraft capabilities and recent actions.